Washington does not have a state income tax on wages or salaries

Washington State does not charge income tax on the money you earn from a job, self-employment, or most other sources. This is one of nine states in the U.S. with no income tax on wages. If you live and work in Washington, you will not file a state income tax return or owe state income tax on your paycheck.

However, Washington does tax certain types of income and has other state taxes that affect residents and businesses. Understanding which income is taxed and which is not helps you plan your finances and know what forms you may need to file.

Key Takeaways

  • Washington has no income tax on wages, salaries, or most self-employment income, so you will not owe state income tax on money you earn from work.
  • Washington taxes capital gains (profits from selling stocks, real estate, or other investments) at 7 percent if you sell more than $250,000 in gains in a single year.
  • You may still owe federal income tax to the IRS even though Washington has no state income tax.
  • Washington funds state services through sales tax, property tax, and business taxes instead of income tax.

What types of income Washington does tax

While Washington does not tax wages, it does tax capital gains — the profit you make when you sell an investment like stocks, bonds, real estate, or cryptocurrency. The capital gains tax applies only to gains above $250,000 in a single calendar year. If you sell investments and make $250,000 or less in profit in one year, you owe no state tax on those gains. If you make more than $250,000, you pay 7 percent tax on the amount above that threshold.

This tax applies to individuals, not to businesses. Long-term gains (from investments held more than one year) and short-term gains (held one year or less) are both taxed at the same rate. You report capital gains on your federal tax return to the IRS, and Washington uses that same information to calculate what you owe the state.

A few other types of income may be subject to state tax in specific situations. Gambling winnings, for example, are taxed as income in Washington. Interest and dividends are generally not taxed by the state, but capital gains from selling the underlying investments are.

How Washington funds state services without income tax

Washington relies on sales tax as its largest source of state revenue. The state sales tax rate is 6.5 percent, and most counties add a local sales tax on top of that, bringing the total to between 8.1 and 10.25 percent depending on where you shop. You pay sales tax when you buy most goods and some services.

Washington also collects property tax through counties and local governments. If you own a home or land, your county assesses its value and charges you an annual property tax bill. Property tax rates vary by county and by how the local government uses the money.

Businesses in Washington pay a business and occupation tax (B&O tax) based on their gross revenue, not their profit. This is a tax on the total money a business brings in, regardless of whether it made a profit that year. Washington also taxes certain services and activities separately.

Federal income tax still applies in Washington

Having no state income tax does not mean you avoid income tax altogether. You still owe federal income tax to the Internal Revenue Service (IRS) based on your income, filing status, and deductions. The federal tax system is separate from state taxes, and Washington's lack of a state income tax does not change what you owe the federal government.

If you work in Washington but live in another state, or work in another state but live in Washington, the rules depend on where you earned the income and where you are a resident. Most states tax residents on income earned anywhere, and tax non-residents only on income earned within the state. Washington, having no income tax, does not tax anyone on wages — resident or not.

Self-employment and business income in Washington

If you are self-employed or own a business in Washington, you do not owe state income tax on your business earnings. However, you do owe federal self-employment tax and federal income tax on your net profit. You will also owe the state B&O tax if your business meets the revenue thresholds, which vary by business classification.

Self-employed people and business owners should track their income and expenses carefully for federal tax purposes. Even though Washington does not tax business income, the IRS does, and you will need detailed records to file your federal return accurately. If you sell a business asset at a profit, that capital gain may be subject to Washington's capital gains tax if it exceeds $250,000 in a single year.

Retirement income and pensions in Washington

Washington does not tax income from pensions, retirement accounts, or Social Security benefits. If you receive a pension from a former employer, distributions from an IRA or 401(k), or Social Security payments, Washington will not charge you state tax on that money. This applies to both residents who receive these payments and to non-residents who earned the pension while working in Washington.

You may still owe federal income tax on retirement distributions, depending on the type of account and your total income. Roth IRA distributions, for example, are not taxed federally if certain conditions are met, but traditional IRA distributions are taxed as ordinary income by the IRS. Check with a tax preparer or the IRS if you are unsure whether your specific retirement income is taxed federally.

Moving to or from Washington and your tax situation

If you move to Washington from a state with income tax, you will no longer owe that state income tax once you establish residency in Washington. Residency is typically established by living in the state for more than 183 days in a calendar year, registering to vote, getting a driver's license, or buying a home. However, your former state may still tax income you earned there before you moved, and you may need to file a part-year return.

If you move away from Washington to a state with income tax, you will owe income tax to your new state on income earned after you move. You may also owe Washington tax on income earned while you were a resident, depending on the type of income. Capital gains from investments sold after you leave Washington are generally not taxed by Washington, but you should verify your situation with a tax professional.

Frequently Asked Questions

Do I have to file a state tax return in Washington?

No. Washington has no income tax, so you do not file a state income tax return. You still file a federal return with the IRS if your income is above the threshold for your filing status. Some people file a Washington return only if they owe capital gains tax on investment sales above $250,000 in a single year.

If I work in Washington but live in Oregon, do I owe Washington tax?

No. Washington has no income tax on wages, so it does not tax anyone on wages earned in the state, whether they are residents or not. You would owe income tax to Oregon on that same income because Oregon taxes residents on all income, regardless of where it was earned.

Are Social Security benefits taxed in Washington?

No. Washington does not tax Social Security benefits, pensions, or most retirement account distributions. You may owe federal income tax on these payments depending on your total income and the type of account, but Washington will not charge you state tax.

What happens if I sell my house and make a profit?

If you sell your primary residence, the profit is usually not taxed by Washington or the federal government, thanks to the primary residence exclusion. If you sell investment property or a second home and make more than $250,000 in capital gains in one year, you owe Washington's 7 percent capital gains tax on the amount above $250,000.

Do I still need to pay federal taxes even though Washington has no state income tax?

Yes. Federal income tax is separate from state income tax. Washington's lack of a state income tax does not change what you owe the IRS. You file a federal return and pay federal tax based on your income, filing status, and deductions, just as residents of other states do.